Dairy Crisis 2009: Stand Up For Rural America While You Still Can

The assault on rural America continues unabated. For the past six months dairy farmers across the country have suffered a historic drop in milk prices while operating costs remain high. Since December 2008, the price that farmers are paid for the milk they produce has plunged over 50 percent, the largest single drop since the Great Depression.

While organic dairy farmers have faced a decrease in overall sales due to the recent world financial meltdown and tight budgets on the home front as a result, the current drop in milk prices is impacting mainly conventional and small to mid-size family dairy farmers — the worst crisis most dairy farmers have faced in their entire careers.

Without immediate action from President Obama, USDA Secretary Tom Vilsack and members of Congress, this current crisis could be the launching point for the final liquidation of the independent family farmer.

Plunge in Milk Prices + High Costs of Production = Final Liquidation

According to the USDA, the average cost of production for milk is $24.08 per hundredweight (cwt or 100 pounds), while the price dairy farmers were paid for their milk in April sunk to $10.78 cwt.

This means that dairy farmers are earning less than half of what it costs to produce their milk. Imagine having your salary cut in half and still trying to cover the same monthly bills. Even worse, feed and fuel prices are starting to go up in the past few months.

For farmers, most of whom work too long of hours and are paid too little money, this is the perfect formula for a final liquidation of one of the last remaining independent segments of ag production. For years, small and medium-sized farms have relied on their dairy cows to stay relatively free from domination by factory farms and corporate agribusiness. But no longer.

The Past Revisits the Future – 1998 Eight-Cent Hogs

What we are witnessing today with dairy farmers has happened before and is part of a historic trend that must not be allowed to continue. As Chris Petersen, President of Iowa Farmers Union and an Iowa family hog farmer, said recently, “First they consolidated the turkeys and chickens, then the hogs and now they’re coming after dairy.”

Petersen spoke at a rally for dairy farmers held on May 30th in Manchester, Iowa, where some 150 family dairy farmers from across the country gathered at a small town livestock exchange, some traveling from as far away as New York and Pennsylvania, in an effort to draw attention to the ongoing crisis.

As a hog farmer who survived the 1980’s farm crisis, Peterson is painfully familiar with the impacts that industrialized agriculture and consolidation have had on family farmers and rural America.

For many Iowans, the current crisis in dairy is eerily reminiscent of 1998, when prices hog farmers were paid for hogs dropped to 8 cents a pound, virtually wiping out an entire generation of hog farmers during a single market downturn.

In 1997, the year before the crash, there were over 122,000 hog farmers across the U.S. Today less than 65,000 remain. In Iowa, the nation’s leading hog producer, there were over 18,000 hog farmers in 1997, while less than 8,300 exist today, with most animals in this sector now raised in confined animal feeding operations (CAFOs) or factory farms.

For those who missed the consolidation of livestock in the 1950’s and 1960’s when it happened to the chicken growers, and then the 1980’s and 1990’s when they came for the hogs, this year will be the final sell-off of the family dairy farmer. The final sector reliant on livestock will at last be captured.

In addition, the industry trend towards animal confinement that has taken off in the past decade in dairy will increase significantly if these small and mid-sized farmers are allowed to fail.

Increasing consolidation in the dairy industry has also played a factor in the current crisis, creating an uncompetitive market for dairy farmers. Just one cooperative, Dairy Farmers of America (DFA) controls 40% of milk produced in the U.S., severely limiting competitive pricing for farmers. But not only does DFA have undue market power, they also have a history of market manipulation and were fined $12 million last year manipulating the milk prices in the commodities market.

U.S. Faces Catastrophic Loss of Dairy Farmers in 2009

Leading farm advocacy groups such as Farm Aid and the National Family Farm Coalition are estimating the potential loss of 20,000 family dairy farmers as a result of the current milk crisis. If action isn’t taken soon in Washington DC, America could lose up to 30% of U.S. dairy farmers — possibly more — as they strain under the monthly cost of debts, which are piling up each month.

Meanwhile, banks have already started cutting off farmer’s access to loans across the country and have increasingly begun seizing herds when farmers can’t make payments.

In a phone call received last week, one farmer told how a neighboring dairy farmer in eastern Iowa had lost his farm. The 550 head family dairy farm was seized last month, forcing a father and his two sons off the farm. Only five years ago, the father had expanded their operation so he could eventually turn the farm over to his sons. Now that dream is gone. To make matters worse, the bank seized the last trailer full of cows on a Friday and the youngest son got married the following day, a wedding that turned from a celebration into a tragedy.

The same farmer who related this story said that he had received a call from his banker who was coming to visit his farm the next day, with no reason given. The farmer said he was current on his payments, but wasn’t sure if his credit would be cut off like it had to several dairy farmers he knew across Iowa.

Stories like this are becoming increasingly common in rural America, especially in dairy country – states like California, New York, Pennsylvania, Vermont and Wisconsin.

While cyclical problems of supply and demand and have caused numerous market collapses in the past, a closer look at the dairy crisis exposes deeper fundamental problems in the dairy sector.

Currently the chattering political class in Washington DC keep repeating the line that the current crisis is due to “overproduction,” but an inspection of dairy imports and exports tells a different story

A recent post from John Bunting, a New York dairy farmer who writes for Milkweed and runs, tallied the imports of milk protein concentrate or MPC and found a record increase in imports in the first quarter of 2009. Between January and March of this year imports of milk protein concentrates (MPCs), not including casein and other dairy products, increased a whopping 24.59% according to the USDA Foreign Agricultural Services.

MPCs are broken-down proteins and fats created by milk being processed at high temperatures and contain tasty things like bacteria and somatic cells. More problematic are the fact that MPCs are considered a glue additive and while not actually approved as a food additive by the FDA, Bunting calls them “technically an illegal ingredient,” can be found in such things as baby formulas, sports drinks, yogurt, pizza and ice cream.

If that doesn’t sound too bad then remember that these foreign milk-like substances are coming from China, India and a host of other countries that don’t have very stringent food safety regulations. Think milk from China, melamine in baby formula, etc – not a good strategy for food safety.

Another interesting trend pointed out by Bunting is the loss of dairy exports by the U.S. during the first quarter 2009, totally over $638 million over the same quarter in 2008. On top of this, Leslie Hatfield reports over at the Huffington Post that according to the National Milk Producers Federation dairy imports into the U.S. “have risen from $80 million to almost $3 billion in the last 10 years.”

So if we have record imports of milk products that compete against our own farmers on their sales in the U.S. and then they have a net loss approaching a billion dollars in trade that takes away from further potential sales, plus a massive increase in imports over the past 10 years, then what we really don’t have is a “surplus” of milk – but a serious trade deficit when it comes to milk products that is pushing American’s dairy farmers to the brink this year.

Additionally, for the month of March, Bunting reports that dairy exports fell by 32.9%. Even with Vilsack’s recent implementation of the new dairy export program, it’s hard to imagine making up that $638 million in time to save the thousands of dairy farmers that will be forced to shut down their barns by the end of this year.

Loss of Family Dairy Farms = Death of Rural America’s Economies

It’s estimated that dairy farmers are currently losing up to $200 per cow, per month. Since dairy processing and dairy farms have one of the largest economic multipliers of any segment in agriculture, with each cow generating $17,000 per year in economic development in the form of jobs, goods and services created, the loss of a single 85 head dairy farm will drain a local economy of nearly $1.5 million in economic activity.

For the eastern Iowa county that lost a 550 head dairy farm last month, that’s $9.4 million flushed out of the local economy forever.

Unfortunately, the number of dairy farms being forced out of business is just beginning. In the next few months, as more banks cut off additional loans to farmers, these numbers are going to climb to record levels for the dairy industry.

A recent conversation with a dairy industry worker revealed the loss of 10 additional dairies across Iowa in the last 6 weeks – totaling another 3,060 dairy cows or $52 million erased from small town local economies across the state.

And while $52 million is chump change for Wall Street banks, which are churning through government bailout cash faster than a five-legged mule, losing a third of U.S. dairy farms this year will be catastrophic for our rural communities.

For people who are having a hard time understanding how bad this will be: This could be rural America’s last stand for independent family farm agriculture. Increasingly, family farmers, rural Americans and farm advocates are pleading with President Obama, Secretary Vilsack and Iowa’s Senator Tom Harkin to do something about it before it’s too late.

Every day, every delay, costs America another farmer. And our farmers are not a renewable resource that can be grown and planted in a single season.

If up to 30 percent of dairy farmers are forced to go into foreclosure, the U.S. could see over 3.1 million of the nation’s 9.3 dairy cows sold off and potentially liquidated. A quick calculation shows the current dairy crisis, if allowed to continue, will blow a $52.7 billion hole in rural America’s economy – most likely more, as the ripple effect will send a shockwave through small towns and businesses across the country.

Rural America is Too Big to Fail

While Senators and Congressmen lined up in Washington during the past year to offer Wall Street a sweetheart deal for making a mess of the U.S. and global economy — erasing a lifetime of earnings for tens of millions of investors because of years of excessive greed — and then reluctantly bailed out Detroit for the sins of auto execs, politicians have done relatively little to help dairy farmers who are facing the crisis of a century.

Sure, Secretary Vilsack has made several small attempts to jumpstart the system, with a few stopgap measures, including $150 million in Milk Income Loss Contract (MILC) payments — which provided farmers who previously signed up for the program a meager $1.51 per cwt subsidy; the USDA’s March purchase of 200 million pounds of surplus nonfat dry milk for use in domestic feeding programs; and a recent use of the Dairy Export Incentive Program (DEIP) to subsidize 92,000 tons of dairy products destined for overseas. However, these steps have done almost nothing to stem the tide.

Unfortunately, none of these actions have translated into higher milk prices. Most U.S. dairy farmers see these attempts as worse than the usual band-aids farmers have been thrown in the past because it allows politicians to pretend they’ve actually solved the crisis when really it’s getting worse every day.

Conversations with dozens of dairy farmers from across the country reveal that the government MILC checks are barely able to cover costs of electricity, let alone feed bills, which have grown by up to 10 percent in the past four weeks.

“We’re not asking for a bailout, we’re just ask for a fair price,” says Jerry Harvey, a third generation Iowa dairy farmer who milks 70 cows in Promise City, Iowa.

And as many farmers across the country are now saying, if Washington thinks there are banks too big to fail, wait until Americans have to rely on food from foreign countries, which have much looser food safety regulations, to feed their families.

All these farmers are asking for is a fair price for the food they produce for American consumers, it’s time some folks in Washington start putting their heads together for a sustainable solution. The cost of failure for America’s dairy farmer is not something the U.S. can afford.

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Amerigo

Monday, June 15th, 2009

This is why the organic/conventional debate should be secondary. Save rural society and it's farms first, then we can discuss organic, conventional, sustainble, permaculture, GMO, biodynamic, no-till.... Free trade destroying agriculture is what led to the Constiution being written. In the 1780s, the weak American government of the Articles of Confederation could not effectively regualte trade. Cheap imports from Britain and France crushed farm prices......until a group of angry farmers stormed the courthouse in Springfield, Mass.....the fallout of which swung the political pendulum in favor of the strong central government......and a year later the Constitution was written, and the rest is history. So,.......never underestimate a mob of angry farmers!

Counter-cyclical payments, like those for corn (and for dairy), ensure that farmers never receive below a certain price, by paying them the difference between what the market offers and a government-set "price floor." This keeps many farmers producing and corn when they would otherwise go out of business. As a result, corn is everywhere: in your soda, in your beef, and in your car. American corn farmers, however, are barely scraping by, while conglomerates like Cargill and Coca-Cola are making billions of dollars off of cheap corn (cheap for them because the government picks up half the tab). Here's Michael Pollan on the issue:

"But though those subsidy checks go to the farmer (and represents nearly half of net farm income today), what the Treasury is really subsidizing are the buyers of all that cheap corn." (The Omnivore's Dilemma, pp 54-5).

Is that really what we want for American dairy farmers too? To enrich Kraft and Dean Foods on their backs, and at the taxpayers' expense?

Per Andrew's comment, subsidies don't seem like a sustainable answer. At the same time, I don't want to see relatively small dairy farmers going out of business in favor of massive, environmentally destructive dairy operations and imported dairy. Is there a solution that keeps the farms viable without huge subsidies?

Thanks, we share your concerns regarding subsidies. The current floor price for dairy has been set artificially low and does not cover cost average feed costs, let alone cost of production. Also the MILC payments have been inadequate.

The dairy crisis represents a real opportunity for Congress and this administration to end anticompetitive markets and price manipulation that have been allowed to grow harmful to family farmers due to increasing concentration. Strengthening anti-monopoly laws and Justice Department enforcement of antitrust legislation would be a good start.

But the truth is, family farm agriculture is as important to America as Wall Street and Detroit, our elected officials need to act.

Thanks for your response. My point is simply that increasing the price supports for dairy farmers would not benefit those farmers in the long run, but, as with corn, would benefit the biggest processors (Kraft, Coca Cola, etc.). Enforcing pertinent anti-trust laws, however, sounds like a great idea.

We are in agreement regarding subsidies, we support Obama's Rural Agenda and the need for strong payment caps. We're also in agreement that a permanent floor price that does not have supply management and expansion clauses worked into legislation would be problematic for both dairy farmers and consumers and would only lead to more mega-dairies.

We're calling for an emergency floor price for 6 months, an opening of emergency lines of credit and something that helps simplify milk pricing so it cannot be manipulated and reflects a real market. The fact is leaders in Washington need to act fast or there will only be more consolidation in the dairy industry.